Do Imports Crowd Out Domestic Consumption? A Comparative Study of China, Japan and KoreaChuanglian Chen, Guojin Chen and Shujie Yao Discussion Papers from University of Nottingham, GEP Abstract: A decline in the relative price of imported goods compared to that of domestically produced goods may have different effects on domestic consumption. Such effects may not be accurately detected and measured in a classical permanent-income model without considering consumption habit formation as pointed out by Nishiyama (2005). To resolve this problem, this paper employs an extended permanent-income model which encompasses consumption habit formation. Both cointegration analysis and GMM are used to estimate the (modified) intertemporal elasticities of substitution (IES) between imports and domestic consumption and the parameters of habit formation as well as the (modified) intratemporal elasticities of substitution (AES). We find that import and domestic consumptions are complements in China, but substitutes in Japan and Korea. Different per capita incomes and consumer behaviors between China and the other two countries are two possible reasons for different relationships between import and domestic consumptions. The research findings have important implications on policies such as exchange rate adjustments in China. Keywords: Habit Formation; Imports and Domestic Consumption; China, Japan and Korea (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:not:notgep:11/03 Access Statistics for this paper More papers in Discussion Papers from University of Nottingham, GEP School of Economics University of Nottingham University Park Nottingham NG7 2RD. Contact information at EDIRC. |
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